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A Banker’s Secret Wealth

Emilio Botín is a billionaire Spanish banker renowned for running a tight ship. He asks that his top credit officers at Santander — one of Europe’s largest banks — make a trek to his vacation home each summer to report on loan exposures. And he queries the head of his charitable foundation, euro for euro, on its smallest donations.

Yet, there is one not-so-small matter that Mr. Botín (pronounced bo-TEEN) has failed to keep tabs on: a Swiss bank account secretly opened long ago by his father that grew to such a size that when Spanish authorities discovered its existence last year, Mr. Botín and other family members paid 200 million euros (about $273 million currently) in taxes to avoid tax evasion charges.

At the request of tax fraud inspectors, a Spanish national court is investigating whether the payment is enough, given the amount that was stashed abroad; tax experts in Spain say that the account could reach two billion euros. The court has also said that officials need more time to sift through the blizzard of documents that the family submitted and will consider whether a criminal charge of document fraud should be brought.

A lawyer for the Botíns, Jesús Remón, said the family was cooperating with the investigation and was “fully in compliance with its tax obligations following their voluntary filing” last year. He added that no family member had been charged with wrongdoing.

Mr. Botín’s tax problems come as debate intensifies over whether struggling governments should demand more tax revenue from the rich. On Monday, President Obama called to end some tax breaks for the wealthiest taxpayers in the United States.

Last Friday, the Spanish government reintroduced a wealth tax that it had abolished three years earlier, hoping to collect an estimated 1.08 billion euros from taxpayers with more than 700,000 euros in declared assets. Spain’s wealthiest have so far not publicly endorsed calls for higher taxes, and Mr. Botín on Friday told reporters that “it seems to me very bad to reintroduce” the wealth tax.

More so than in other European countries, where bankers are largely anonymous figures, Mr. Botín holds sway in Spain. Although he avoids social events and his public utterances are few, his influence is seen as wide-ranging. And he has been able to retain control of Santander despite his family’s controlling just 2 percent of its shares.

Neither the judiciary nor the family has provided details about how much money the Swiss bank account contained or how the amount grew over time. Nor would Mr. Remón, the lawyer, comment on whether Mr. Botín had been aware of the account.

Photo

A Spanish court is investigating whether the family of Emilio Botín, the head of Banco Santander, paid too little taxes.Credit
Daniel Ochoa De Olza/Associated Press

What is known is that Mr. Botín’s father, also called Emilio, left Spain with part of his wealth in late 1936, after the start of the Spanish Civil War, fearing, like many other Spaniards, what might come.

The elder Mr. Botín spent a few months in London before moving to Basel, Switzerland, and eventually returning to Spain to resume leadership of the bank that he had run since 1933. But while he returned to Spain, the money he salted away in Switzerland did not. The senior Botín died in 1993. Last year, the French government passed on to Spain data that it had obtained from Hervé Falciani, a former employee in HSBC’s Swiss subsidiary, naming almost 600 Spanish holders of secret bank accounts. Among those was one belonging to the estate of Mr. Botín’s father.

In his opening summary, the judge in charge of the case, Fernando Andreu, highlighted “the complexity of the hereditary structures” of trusts, foundations and other companies set up to oversee the account. The closest he came to explaining what was in the account was to say that it also included a 12 percent stake in Bankinter, a midsize bank in which Jaime Botín, Emilio’s brother, is a leading shareholder. That holding, at current stock market value, would be worth about $310 million.

Representatives for Mr. Botín have said that the family has voluntarily paid what it owes and that Mr. Botín expects that the government will agree and close the case. It seems altogether likely that Mr. Botín and his family will be cleared of any wrongdoing, which would come as no surprise to the banking patriarch’s fiercest critics.

“Santander is not only too big to fail but it is also the best corporate brand image that Spain has — so nobody in the government, judiciary or elsewhere is ever going to question seriously what they do,” said Antonio Panea, a lawyer and shareholder gadfly who has fruitlessly sued the institution on a dozen claims.

“I’m convinced that the Botíns are not motivated by money, they are motivated by love of banking,” said Mauro F. Guillén, a management professor at the Wharton School at the University of Pennsylvania and author of a book on Santander’s rise to prominence. “If they were interested in maximizing their own wealth, they would have diversified out of Santander.”

Luis Arenzana, a portfolio manager in Madrid who worked at Santander as an investment banker in the early 1990s, said: “Some of what Santander has done was borderline ‘alegal’ rather than illegal. But then to be investigated occasionally for possible misconduct is the normal state of affairs for any large bank — anybody who succeeds in Spain is always suspected of wrongdoing.”

And a success it has been.

After taking over at the bank from his father in 1986, Mr. Botín caught domestic rivals flat-footed by raising the interest paid on deposits, by hugely increasing the market share of what had been a middle-of-the-pack bank with a minimal international presence.

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Emilio Botín is head of Banco Santander, which is based in Madrid.Credit
Nacho Cubero/Reuters

Then, in a spate of deal making, Mr. Botín went from one takeover to the next. Besides Spain, Santander now has a dominant commercial banking presence in Brazil and Britain as well as a growing one in the United States through its majority stake in Sovereign Bank, based in Boston.

This ability to merge and grow made Santander the envy of banks worldwide. One of its competitors, Barclays, even went so far as to commission McKinsey to study how the bank did it, according to a person with knowledge of the consultancy project.

Now, instead of celebrating his extraordinary feat of transforming a regional bank into a global financial colossus, the billionaire patriarch is facing a set of challenges that could even jeopardize more than a century of family control of the bank.

In many respects, the financial crisis has done the most damage: Santander’s once high-flying stock is down almost 40 percent over the last year. And while the bulk of the bank’s profits come from Latin America and Britain, 35 percent of its loan book remains vulnerable to unemployment-ravaged Spain and bailed-out Portugal.

Spain’s main newspapers have left Mr. Botín’s tax problems mostly untouched after a flurry of stories in June when the criminal investigation was announced.

To a large extent that may be because of the widely held presumption that nothing more will come of the case. But some Spanish journalists also concede that they have not been aggressively digging.

“Santander spends massively on advertising and this influences the news treatment that they receive,” said Salvador Arancibia, a business journalist in Madrid who has covered Santander since 1980 and who has also worked for the bank. “Especially at a time when the media is in such a delicate financial situation.”

One of the few places in Spain where Mr. Botín is openly criticized is Puerta del Sol, the public square that since May has been home to the antiestablishment protests of Spain’s “indignados,” or “angry ones.” Beyond the slogans and puns disparaging the family name (Botín means loot or booty in English), a broader displeasure was on display.

“Botín is the symbol of the powerful banker,” said Luis De Miguel Sanz, a secondary school teacher. “So he can’t expect to be admired when his money is under investigation.”

A version of this article appears in print on September 21, 2011, on Page B1 of the New York edition with the headline: A Banker’s Secret Wealth. Order Reprints|Today's Paper|Subscribe